If recoupments occur sparingly, as I’d expect, where should the remaining funds go?
Keep them for “times of national emergency” etc. to hedge against correlated risk.
How big is the risk that the fund will be used in illicit ways, such as tax evasion, despite the fact that donors cannot claim more than they spent?
Modern society strongly incentivizes misusing anything that touches money, so without further evidence, I’d say that the risk is very high (near certainty). If we haven’t found a way to misuse it, it is more likely that we are not clever enough than that the way does not exist.
First thought: I put in $100 to an 80% fund. I wait a year to claim the tax break on the 80% donation netting say 30%*$80=$24 in reduced taxes. Then I take out $95. I’ve made $19 on the trade. Of course, a government would see this right away and not allow tax breaks for such contributions. But this sort of thing seems rife for problems.
Another: I put in $100, $80 goes to a “charity” that gives me a 10% kickback. Then I take out $95 and I’ve made $3.
You might be able to fix this by requiring that contributors maintain almost all of their assets as property of the fund. Then if I make a withdrawal for “an emergency” I can’t keep any profit or buy anything that doesn’t go right back to the fund. But that sounds a lot like the “everything in common” schemes that have failed so often in the past. So, we’d need to modify it to make it viable.
Unless they are in a legitimate emergency situation, they are defrauding charity. Unfortunately, this doesn’t stop everyone, but if they are caught, they would lose all of the money they donated. If I were the one committing fraud, this would seem very risky to me.
Fraudulent claims usually have different characteristics than non-fraudulent claims. If someone claims the full amount they’re entitled to on a large sum of money, the fund should investigate that claim before giving the money.
Keep them for “times of national emergency” etc. to hedge against correlated risk.
Modern society strongly incentivizes misusing anything that touches money, so without further evidence, I’d say that the risk is very high (near certainty). If we haven’t found a way to misuse it, it is more likely that we are not clever enough than that the way does not exist.
First thought: I put in $100 to an 80% fund. I wait a year to claim the tax break on the 80% donation netting say 30%*$80=$24 in reduced taxes. Then I take out $95. I’ve made $19 on the trade. Of course, a government would see this right away and not allow tax breaks for such contributions. But this sort of thing seems rife for problems.
Another: I put in $100, $80 goes to a “charity” that gives me a 10% kickback. Then I take out $95 and I’ve made $3.
You might be able to fix this by requiring that contributors maintain almost all of their assets as property of the fund. Then if I make a withdrawal for “an emergency” I can’t keep any profit or buy anything that doesn’t go right back to the fund. But that sounds a lot like the “everything in common” schemes that have failed so often in the past. So, we’d need to modify it to make it viable.
Unless they are in a legitimate emergency situation, they are defrauding charity. Unfortunately, this doesn’t stop everyone, but if they are caught, they would lose all of the money they donated. If I were the one committing fraud, this would seem very risky to me.
Fraudulent claims usually have different characteristics than non-fraudulent claims. If someone claims the full amount they’re entitled to on a large sum of money, the fund should investigate that claim before giving the money.